Phoenix Taps Municipal Bond Market for 0M Infrastructure Boost

Phoenix, the nation's fifth-largest city, is making a long-awaited return to the municipal bond market this week, seeking to raise 8.8 million in new funding for a range of critical infrastructure projects. The city's last new money general obligation (GO) bond issue was in 2012, and this latest offering marks a strategic shift towards more frequent borrowing to address the city's growing needs.

Unlocking Sustainable Funding for Phoenix's Future

Tapping Voter-Approved Bonds for Diverse Infrastructure Needs

The upcoming bond sale taps into 0 million in authorization approved by Phoenix voters in November 2022, the city's first GO bond election since 2006. The four-part bond program will fund a wide range of public safety, transportation, utility, community, and economic development initiatives, reflecting the city's comprehensive approach to infrastructure investment.

Shifting to a More Proactive Borrowing Strategy

Phoenix's Chief Financial Officer, Kathleen Gitkin, has outlined a strategic vision to pursue smaller, more frequent bond programs, with the goal of securing 0 million in new GO bonds every five to seven years. This approach aims to maintain a sustainable debt profile without significant increases to property tax rates, while ensuring the city can address its evolving infrastructure needs in a timely and responsive manner.

Leveraging Favorable Credit Ratings and Market Conditions

The city's strong credit profile, with Aa1, AAA, and AA-plus ratings from Moody's, Fitch, and S&P, respectively, positions Phoenix to access the municipal bond market at favorable terms. The timing of the offering also aligns with a decline in the city's existing debt service obligations, allowing the new bonds to be structured in a way that maintains the current secondary property tax rate.

Addressing Pension Liabilities and Fiscal Challenges

While Phoenix's financial position is generally robust, the city faces long-term liability challenges related to rising pension costs and the impact of state-level actions that have reduced its tax base. The city has been proactive in making pension contributions above the actuarially required levels, and the bond offering's disclosure documents do not indicate any immediate concerns about these fiscal pressures.

Navigating Climate Risks and Disclosure Expectations

The bond offering's preliminary official statement does not include detailed disclosures about climate-related risks facing the city, a trend that has been observed across the Phoenix metropolitan area. Experts suggest that bond counsel and municipal advisors have not actively advocated for more comprehensive climate risk disclosure, despite the city's exposure to issues like persistent drought and extreme heat. As investors and regulators increasingly demand greater transparency on these matters, Phoenix may need to enhance its climate risk reporting in future bond offerings.

Assembling a Diverse Underwriting Team

The bond sale is being led by Piper Sandler, with additional underwriters including Morgan Stanley, Stifel, Blaylock Van, PNC Capital Markets, and Raymond James. Greenberg Traurig is serving as bond counsel, and Public Resources Advisory Group is the financial advisor, ensuring a well-rounded team to support the city's return to the municipal bond market.